SBI Mutual Fund makes changes to hybrid and debt schemes

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SBI Mutual Fund has altered the mandates of its hybrid and debt schemes in accordance with the SEBI fund classification norms of October 2017. SBI equity schemes have also been changed about which we wrote here.

In this article we will cover the changes to major SBI debt and hybrid schemes. Most of these changes specify that fund portfolios must qualify with a specific range of ‘Macaulay Duration.’ Macaulay Duration is a technical parameter which basically gives you an idea of the average maturity of debt in a scheme’s portfolio – how long its bonds or money market instruments will take to mature.

The shorter this number, the less interest rate risk a mutual fund scheme has. In addition to the changes specified below, all SBI fund schemes can invest 0-10% of their assets in units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs).

Although most of the changes are relatively technical, three SBI schemes have undergone fundamental transformations. You can read more about them here.

These schemes are no longer the ones that existing investors had signed up for. Investors should hence consider carefully whether they wish to exit. They can exit without paying exit load before 15th May 2018. However, an exit will trigger a tax implication.

SBI Magnum Balanced: This scheme was earlier allowed to invest 50-100% of its corpus in equities, 0-40% in debt and 0-10% in money market instruments. This has been changed to 65-80% in equities and 20-35% in debt. In other words, the fund’s mandate now brings it squarely into the equity category for tax purposes. This was earlier dependent on the actual equity allocation that was taken by the fund manager.

SBI Magnum Instacash Fund – Liquid Floater (now SBI Overnight fund): This scheme was earlier allowed 0-100% of its assets in debt and money market instruments. However, there was no specification of the maturity of these instruments. Under the new rules, the scheme’s holdings must mature overnight (on the next business day).

SBI Magnum Instacash Fund (now SBI Magnum Ultra Short Duration Fund): This scheme was earlier allowed 0-100% of its assets in debt and money market instruments. However there was no specification of the maturity of these instruments. Under the new rules, the scheme must invest in debt securities such that its Macaulay Duration is of 3-6 months.

SBI Premier Liquid Fund (now SBI Liquid Fund): The scheme could earlier invest 0-100% in debt and 0-20% in securitised debt. This is unchanged, however, it can now only invest in debt securities with residual maturity up to 91 days.

SBI Magnum Savings Fund: This was was earlier allowed to invest 65-100% of its assets in floating rate instruments and 0-35% in fixed rate instruments. It must now invest its entire portfolio in debt and money market instruments having original or initial maturity up to one year.

SBI Short Term Debt Fund: This scheme was earlier allowed 65-100% of its assets in debt and money market instruments and 0-35% in securitised debt specifically. No portfolio maturity was specified. Now the scheme must invest in debt and securitised debt such that the portfolio Macaulay Duration is 1-3 years

SBI Regular Savings Fund (now SBI Magnum Medium Duration Fund): This fund could earlier invest 0-100% of its assets in debt out of 10% had to be in securitised debt. It could invest up to 25% of its assets in cash and money market instruments and up to 20% of its assets in equities (BSE 100 stocks) only. This fund can only invest only in debt instruments such that the Macaulay Duration of its portfolio is 3-4 years.

SBI Magnum Income Fund: This fund could invest 0-90% of its assets in debt (of which 0-10% in securitised debt), 0-90% in government securities, 0-25% in money market instruments and 0-5% in the units of any other mutual fund. The fund can now invest 0-100% of its portfolio in debt and money market instruments such that the Macaulay Duration of the portfolio is 4-7 years.

SBI Corporate Bond Fund (now SBI Credit Risk Fund): The scheme could earlier invest 80-100% of its assets in corporate debt and 0-20% in securitised debt. It must now invest 65-100% of its assets in corporate debt rated AA and below. It can invest 0-35% of its assets in debt instruments rated above AA and in government debt.

SBI Treasury Advantage Fund (now SBI Banking and PSU Fund): The fund could earlier invest 0-50% of its assets in money market securities with residual maturity up to 1 year and 0-50% in government and corporate debt (without any specifications). It must now invest 80-100% of its assets in debt issued by Public Sector Units, Banks, Public Finance Institutions and Municipal Bodies. It can invest 0-20% of its assets in other types of debt.

SBI Magnum Gilt Fund – Long Term Plan (now SBI Magnum Gilt Fund): This scheme could earlier invest 0-100% of its assets in central and state government securities. It must now invest 80-100% of its assets in government securities and 0-20% in Collateralized Borrowing and Lending (CBLO), Repos (Short Term Instruments) and Cash. In other words, the fund is now required by its mandate to be true to label.

SBI Magnum Gilt Fund – Short Term Plan (now SBI Magnum Constant Maturity Fund): This scheme could earlier invest 0-100% of its assets in central and state government securities. It must now invest 80-100% of its assets in government securities such that the portfolio’s average maturity is around 10 years. The scheme’s benchmark has also changed from the I-sec Si-BEX to Crisil 10 year Gilt Index.

SBI Magnum Children’s Benefit Plan (now SBI Magnum Children’s Benefit Fund): The scheme could invest 0-25% of its assets in equities and 0-100% of its assets in debt. This has been kept the same, except a narrowing of the debt allocation from 75-100%. The scheme will also now have a lock-in of 5 years or until the child attains the age of majority (18). Parents, guardians, relatives and institutions can invest on behalf of the child. The scheme also provides group accident insurance to the unitholder and either parent/guardian. On the death of either parent as a result of an accident, the unitholder will also receive 10% of the insurance claim amount towards accidental expenses.

SBI Magnum Monthly Income Plan (now SBI Debt Hybrid Fund): This fund could earlier invest 0-15% of its assets in equity and 85-100% of its assets in debt. It can now invest 10-25% of its assets in equity and 75-90% of its assets in debt.

SBI Magnum Monthly Income Plan Floater (now SBI Multi Allocation Fund): This scheme could earlier invest 0-15% of its assets in equities, 85-100% in debt (of which 65-100% in floating rate debt) and 0-20% in fixed rate debt or money market instruments. It can now invest 10-80% in equities, 10-80% in debt and 10-80% in gold. The fund’s benchmark has also changed from the CRISIL MIP Blended Index to an equal combination of the Nifty, gold price and CRISIL composite bond index.

SBI Gold ETF: The minimum allocation to gold has been raised from 90% to 95%.